Grant v Lammas

[2016] NZHC 2674

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2016-441-34 [2016] NZHC 2674

UNDER

s 297 of the Companies Act 1993 and

Part 18 of the High Court Rules

IN THE MATTER OF

the liquidation of Central Tyres
Waipukurau Limited (in liquidation)

BETWEEN

DAMIEN GRANT AND STEVEN KHOV Plaintiffs

AND

KEITH LAMMAS Defendant

Hearing:	7 November 2016
Counsel:	K E Barry for Plaintiffs No appearance for Defendant
Judgment:	8 November 2016

JUDGMENT OF WILLIAMS J

[1]      The plaintiffs are the liquidators of Central Tyres Waipukurau Limited.  The defendant is a former employee of that company.   Central Tyres was put into liquidation on 16 April 2015.   Within the two years prior to that date – that is

6 December 2013, Central Tyres sold a 2011 Ford Ranger, registration no. FZM517 to  the  defendant  for  $20,000.    The  plaintiffs  say this  transaction  occurred  at  a substantial undervalue because the market value of the vehicle was, at the time,

$31,200. They claim the $11,200 difference.

[2]      As the defendant took no steps in the matter, the application proceeded before me by way of formal proof.

[3]      Section 297 applies.  It provides:

GRANT & ANOR v LAMMAS [2016] NZHC 2674 [8 November 2016]

(1)      Under subsection (2) the liquidator may recover from a person (X)

the amount C in the formula A − B = C, where—

(a)      A is the value that X received from a company under a transaction to which the company was or is a party; and

(b)      B is the value (if any) that the company received from X

under the transaction.

(2)      The liquidator may recover the difference in value (that is, C in the formula in subsection (1)) from X if—

(a)      the company entered into the transaction within the specified period; and

(b)      either—

(i)        the company was unable to pay its due debts when it entered into the transaction; or

(ii)      the company became unable to pay its due debts as a result of entering into the transaction.

(3)      For the purposes of this section,—

(a)      transaction has the same meaning as in section 292(3): (b) specified period means—

(i)        the   period   of   2   years   before   the   date   of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and

(ii)       in the case of a company that was put into liquidation by the court, the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which, the order of the court was made; and

(iii)     if—

(A)      an  application  was  made  to  the  court  to  put  a company into liquidation; and

(B)      after the making of the application to the court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),—

the period of 2 years before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.

[4]      The issues are:

(a)       whether the transaction was a transaction according to s 297(3)(a); (b)          whether it was at an undervalue; and

(c)       whether it was within the “specified period” in terms of s 297(3)(b).

[5]      There  is  no  doubt  this  was  a  “transaction”  as  it  was  a  transfer  of  the company’s property in terms of s 292(3).  Nor is there any doubt that the transaction was within the specified period, being within two years prior to the liquidation.

[6]      Directions as to service were made on 12 April 2016 to the effect that the defendant was the only party required to be served.  He was duly served personally on 25 June 2016 at 31 Tapairu Road, Waipawa, with a statement of claim, notice of proceeding and initial disclosure.   The process server confirmed that the recipient acknowledged that he was the defendant.

[7]      The affidavit of Kieran Michael Jones was filed in support of the application. It appended details of the purchase by the defendant and details of the vehicle.  On the date of the transaction, the vehicle was two years old.   The closet odometer reading in time was taken on 1 August 2013 (just over four months prior to the purchase), and it was recorded at 26,568 kilometres.  The latest odometer reading on

2 February 2015 was 38,514 kilometres.

[8]      A red book valuation certificate issued on 20 July 2015 identified the 2011

Ford   Ranger   MYO9   XLT   cab   chassis   supercab,   4   door   manual   5   speed,

1254 kilograms 3.0 DT.   Backdated to the date of purchase, the certificate set the truck’s value at $31,200 on the basis that the vehicle condition is “very good”.  The same vehicle in good condition is valued at $30,650; while if it is in “as new” condition, the value is $31,750.   In fact the actual truck had slightly higher specifications than the listed vehicle – 115 kw rather than 105 kw and greater weight

– but these differences would have made the actual truck more valuable, and the valuation correspondingly more conservative.

[9]      In light of that and the very low mileage reading I am well satisfied that the valuation provided is proved.

[10]     In addition, the defendant accepted in his s 261 interview that a valuation of the order of $30,000 was accurate.1

[11]     The defendant has been served but has taken no further steps and it is in order for me to enter judgment in accordance with s 297 of the Companies Act on the basis that  the defendant  purchased  the vehicle at  an  undervalue of $11,200  from  the plaintiffs; the transaction was entered into within a two year period from the date of the plaintiffs’ liquidation and the plaintiffs is otherwise unable to pay its due debts as a result of entering into the transaction.

[12]     As to the last point, in Central Tyres Waipukurau Limited (in liquidation) v Pallesen2    Brown J  found  that  the  company  director,  Mr  Pallesen,  breached directorship duties for continuing to trade even after the company could not meet a debt due on 18 June 2012 to Mr David Dicks, and its ongoing GST and PAYE obligations from January 2013.   The proofs of debt filed in the liquidation demonstrate that by the end of November 2013 (just a few days before the sale of the

vehicle), the company had accumulated tax arrears of $94,000 to the IRD and had failed to repay other debts of over $14,000.  Meanwhile there is evidence of multiple other debts for which proofs of debt have not been filed.  The $20,000 payment for the truck was immediately disbursed to meet those other debts.  According to bank statements provided for the period during which the truck was sold, the company’s cash flow during this period was insufficient to meet the debts described.

[13]     It is clear therefore that the company sold the vehicle to the defendant even though it was unable to pay its then due debts as they became due.

[14]     I must also be satisfied that there is no defence available to the defendant in terms of s 296(3) – that is he received the vehicle in good faith; that a reasonable

person would not have suspected, and the defendant did not have reasonable grounds

1      Page 11 of transcript.

2      Central Tyres Waipukurau Limited (in liquidation) v Pallesen [2016] NZHC 146.

to suspect that the company was insolvent; and that the defendant paid for the vehicle believing the transfer was valid and would not be set aside.

[15]     In this case, the defendant has taken no steps and in the absence of a factual basis upon which to conclude that any of these elements is arguable, I am bound to find that there is no such defence.

[16]     Knowledge that the company is under financial stress will generally be seen as a disqualifying factor for undervalue transactions, and since Mr Lammas was company manager, he clearly knew that the company was, at the time of the transaction, unable to pay its debts as they became due.3

[17]     There will be judgment in favour of the plaintiff for $11,200 accordingly. The plaintiff seeks costs.   Given the modest judgment sum, a modest award is in order.  I award costs in the sum of $400 plus reasonable disbursements.

Williams J

Solicitors:

Waterstone, Auckland

3      See  Re  Orbit  Electronics  Auckland  Ltd  (in  liquidation)  (1989)  4  NZCLC  65,170  and

Levin v Market Square Trust [2007] NZCA 135, [2007] 3 NZLR 591.